Types of Directors under Companies Act, 2013

The Companies Act 2013 governs the appointment of directors and the roles and responsibilities of directors in India. Directors play a very vital role in corporate governance and the management of a company’s affairs procedures and provisions related to their roles and responsibilities etc. The Act classifies directors into various categories based on their roles, appointment methods, and responsibilities. This article will discuss in a detail and will also analysis of the types of directors under the Companies Act, 2013.

Different Types of Directors

1. Executive Director

An Executive Director is a full-time director involved in the day-to-day operations of the company. They are responsible for decision-making and management tasks within the organization. Executive Directors may hold additional designations such as Managing Director, Whole-time Director, or CEO.

a) Managing Director (MD)

A Managing Director is defined under Section 2(54) of the Companies Act, 2013 as a director who, by virtue of the company’s articles of association, an agreement, or a resolution passed by the board or shareholders, has substantial powers of management.

Key Responsibilities:

• Overseeing daily operations
• Implementing company policies
• Decision-making on financial and strategic matters

b) Whole-time Director

A Whole-time Director is a director who devotes their full time or maximum time to the company’s affairs and course of business and is entitled to remuneration and other expenses. They are considered employees of the company and actively participate in management activities.

2. Non-Executive Director

Non-Executive Directors (NEDs) are those directors who do not participate in the day-to-day management of the company but play an advisory and oversight role and supervise from the overlook.

a) Independent Director

Independent Directors, as per Section 149(6), are directors who do not have any pecuniary relationship with the company apart from receiving the director’s remuneration. They ensure that corporate governance is functioning in a proper manner and protect the best interests of shareholders, particularly minority shareholders and also supervise the level of transparency and accountability.

Eligibility Criteria:

• Must not be a promoter or related to the promoters
• Should not have any material pecuniary relationship with the company
• Should possess the relevant expertise and experience as per the company business.

Roles and Responsibilities:

• Ensures that ethical business practices and principles are followed
• Protecting shareholder interests
• Auditing and monitoring financial disclosures

b) Nominee Director

Nominee Directors are appointed by financial institutions, banks or shareholders who hold significant stakes in the company. They represent the interests of their nominators and ensure compliance with agreements and regulations.

3. Additional Director

As per Section 161(1), the Board of Directors has the power to appoint an Additional Director between two annual general meetings (AGMs). However, they must be confirmed by shareholders at the next AGM; otherwise, their term expires.

4. Alternate Director

Under Section 161(2), an Alternate Director can be appointed in place of an original director who is absent from India for more than three months. The alternate director holds office only for the period of the original director’s absence.

5. Shadow Director

Shadow Director is a person who is not formally appointed as a director but whose directions and instructions are followed by the board as per the procedure and rules of company. Though not officially recognized, shadow directors may be held liable for their influence and other type of misuse over the company’s decisions and operations.

6. Women Director

As per Section 149(1), certain classes of companies, such as listed companies and large public companies meeting specific criteria, must appoint at least one woman director as per their procedure and regulations. This provision promotes gender diversity in corporate governance. Rest is depended upon the requirement of the company.

7. Small Shareholder Director

A Small Shareholder Director is appointed to represent the interests of small shareholders, particularly in large public companies. Shareholders holding shares of a nominal value not exceeding Rs. 20,000 collectively can nominate a candidate for this role.

8. Resident Director

As per the provision of S.149(3) of the Companies Act, 2013 every company must need to have at least one director who has resident of India for a total period of which is not less than 182 days in the previous calendar year. The provision ensures that companies have a director who is physically present in the country to oversee operations.

9. Government Nominee Director

In certain companies, particularly public sector undertakings (PSUs) or those receiving government aid and other financial support, the government may appoint a Nominee Director to safeguard the best interest of the company. Their role is to ensure compliance with policies as set up by the government and regulations and also represent the government’s stake in the company.

10. Professional Director

Professional Directors are appointed based on their expertise and relevant experience in a particular field as per the requirement of the company, such as law, finance, or technology. Their primary role is to provide guidance, strategic input and advisory roles rather than manage day-to-day affairs or direct engagement in the operation of business.

Conclusion

Directors are essential for the governance and functioning of a company. The Companies Act 2013 provides a strong and well-structured framework for different types of directors, ensuring efficient and effective management, accountability, transparency, stakeholder protection and various remedies. Companies must adhere to these provisions to maintain good and proper corporate governance and their operations in compliance with the law. The inclusion of specialized and expert directors, such as Professional and Resident Directors, ensures that companies have a diverse and knowledgeable leadership who helps in the growth and stability of company business.

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FAQs

1. What is the difference between an Executive and a Non-Executive Director?

Executive Directors are proactively involved in the day-to-day management of the company, whereas Non-Executive Directors primarily play an advisory and oversight role without engaging in daily operations.

2. Who can appoint an Independent Director?

Independent Directors are the liability free directors who are appointed by the shareholders of the company and must meet the eligibility criteria defined under provision of 149(6) of the Companies Act, 2013.

3. Is it mandatory for every company to have a female director?

As per Section 149(1), listed companies and certain public companies meeting prescribed criteria must have at least one-Woman Director, as per the given procedure of the Act.

4. What are the key responsibilities of a Nominee Director?

A Nominee Director represents the interests of the entity that nominated them, ensuring compliance with agreements and safeguarding stakeholder interests.

5. Can an Additional Director be reappointed?

Yes, an Additional Director can be reappointed, but they must be confirmed by shareholders at the next AGM, failing which their term expires.

6. What is the purpose of appointing a Resident Director?

The purpose of appointing a Resident Director is to ensure that at least one director is physically present in India for regulatory and operational oversight.

7. How is a Small Shareholder Director appointed?

A Small Shareholder Director is appointed through a nomination process by small shareholders who collectively hold shares of a nominal amount of value not exceeding Rs. 20,000.

8. Can a Professional Director take part in daily management decisions?

No, Professional Directors primarily provide expertise and guidance in their field but do not engage in daily management activities.